SACRAMENTO, Calif. (Legal Newsline) - Lawyers for a man who rejected Hyundai’s offer to pay $60,500 over a supposedly defective car can’t collect nearly $100,000 in fees after negotiating a much lower settlement on the eve of trial, a California appeals court ruled.
Deciding for the first time the reach of a fee-shifting provision that has been in California law since 1851, California’s Third Appellate District Court ruled that the term “judgment” in the law applies to settlements as well as verdicts obtained at trial. The result was supported by the Civil Justice Association of California, which supports business, and opposed by the Consumer Attorneys of California.
Oscar Madrigal purchased a 2012 Hyundai Elantra for $24,000 and sued in 2016 under California’s Song-Beverly Act, a “lemon law” that allows consumers to recover the cost of a vehicle plus attorney fees if it has defects that can’t be fixed.
Five weeks later, Hyundai offered to settle under California’s Section 998 for $42,400, including $5,000 in attorney fees. Madrigal didn’t respond, so in May 2017 Hyundai made a second offer for $60,500, including $5,000 in attorney fees, which the plaintiff also rejected.
At the start of trial in January 2019, the two sides settled for $39,000 in cash plus fees to be determined by the court. (The plaintiffs didn’t have to return the vehicle, as they had already sold it.) Their lawyers then asked for $228,000 in fees and costs, including a “lodestar enhancement” of $69,000 to compensate them for the risk of the case.
Hyundai moved to strike all costs and fees incurred after the plaintiffs rejected the second offer, as allowed under Section 998. Placer County Judge Michael W. Jones reviewed the plaintiff lawyers’ billing records, finding statements from three law firms and 16 separate attorneys, including “numerous instances of duplicative billing” and “unreasonable amounts of time spent on various tasks.” He reduced the legal fees and expenses to $99,000.
Hyundai appealed the fee award as too high. The appeals court, in an April 11 decision penned by Judge Peter Krause, said “a burden of sorts arises for a plaintiff who rejects a valid offer to compromise under section 998—the obligation to obtain a judgment more favorable than the unaccepted offer.” The policy reason for this is clear, the judge went on: To encourage settlement by providing a “strong disincentive” to going to trial with a weak case.
A settlement is a “judgment” under Section 998, even though the statute doesn’t define the term, the court ruled, rejecting plaintiff arguments a judgment could only be rendered after trial. It would be illogical to conclude the fee-shifting provisions in the Song-Beverly Act could be triggered by a “judgment” through settlement, but not Section 998, the court said.
Judge Ronald Robie wrote a lengthy dissent, saying the cost-shifting provision should only apply when the plaintiff “fails to obtain” a better result through “a unilateral action,” which he defined as taking a case all the way to a jury verdict. “A settlement does not result in a winner or a loser,” the judge wrote. By entering into settlement talks on the day the trial started, he went on, Hyundai effectively revoked its last offer anyway.
The majority’s interpretation of the law could lead defendants to refuse to make new settlement offers after evidence emerges weakening the case against them, the judge went on, knowing that the plaintiff could get stuck with paying their defense costs if he loses at trial.
“I believe it is indicative of the overall historical understanding that section 998(c)(1) applies when a less favorable result is obtained while the parties act in their respective litigant roles, e.g., as adversaries at trial or arbitration,” he concluded.